American International Group's protracted sale of its Taiwan unit was further complicated on Tuesday when a Taiwanese company proposed buying a stake in the business, an offer that may please regulators but runs counter to AIG's plans.

AIG has been trying for 15 months to sell its Nan Shan Life unit, and actually had a deal to sell the business last year for $2.15 billion. But local regulators blocked the deal and AIG was forced to put it back up for sale.

The New York-based insurer got four offers for the business in the latest round, but on Tuesday home security company Taiwan Secom Group <9917.TW> proposed buying a stake in Nan Shan and jointly running it with AIG. Taiwan Secom would expect to list the unit in Taiwan.

A spokesman for Taiwan Secom later told Bloomberg News that his company could also bid with partners for all of Nan Shan, rather than just part of it.

Taiwan regulators have previously suggested a Taiwan listing, but AIG has said it wants to sell the unit to another company, to increase the chances of its doing a deal quickly.

The sale of Nan Shan is part of AIG's recapitalization plan, which is expected to close soon and will leave the U.S. Treasury with a 92.1 percent stake in the company.

AIG declined to comment. AIG Chief Executive Bob Benmosche, who is undergoing aggressive chemotherapy for cancer, personally went to Taiwan last month to discuss the sale criteria with regulators.

Analysts said any Taiwan Secom deal would likely generate fewer proceeds for AIG than the outright sale it planned.

We see today's news as a slight negative, as we had expected other companies to make a higher offer for the unit, S&P insurance equity analyst Cathy Seifert said in a note.

'BEING SERIOUS'

Taiwan Secom, an affiliate of cement firm Goldsun <2504.TW>, is setting up a holding company with Hong Kong investment firm Primus Financial to acquire a stake in Nan Shan, said Max Chu, a director of Taiwan Secom.

We are being serious. We are not just looking around, he said. Taiwan Secom, partly owned by Japan's Secom <9735.T>, did not participate in the first round of bidding that AIG held last month, he added.

Regulators have left it up to AIG to decide what it wants to do with Nan Shan and are waiting for AIG to come up with a preferred bidder.

Regulators have set five conditions for any buyer: show fund-raising ability for future operations; show a long-term commitment to run Nan Shan; show experience in running an insurance business; promise to take care of employees and policy holders; have funding sources that meet Taiwan regulations.

A first deal to sell the AIG unit to Primus and Hong Kong-listed China Strategic <0235.HK> was rejected after regulators said it did not meet all those conditions.

AIG is the only one that's making rules of the game, said an official of one of the four Taiwanese companies that had submitted bids. They still have not told us what is coming up next.

Nan Shan is Taiwan's No. 3 insurer by market share after the insurance arms of Cathay and Fubon. It has assets of T$1.7 trillion ($56.5 billion) and lost T$12.7 billion in the second quarter of this year and T$12.5 billion in the third quarter.

Taiwan Secom shares slipped 0.5 percent and Goldsun was off 1.8 percent, while the broader market <.TWII> was down 0.3 percent.

AIG shares fell 2.6 percent to $56.56 in midday trading, making AIG by far the biggest decliner among S&P insurance shares <.GSPINSC>.

($1=T$29.1)

(Editing by Jonathan Standing, Dave Zimmerman and John Wallace)

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